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October 1, 2015 Comments Off on Tax-saving mutual schemes can shed tax tag Views: 1014 Finance

Tax-saving mutual schemes can shed tax tag

On 9 September, ICICI Prudential Tax Plan changed its name to ICICI Prudential Long Term Equity Fund (Tax Saving) (IPLTEF). The scheme continues to be an equity-linked savings scheme (ELSS) that offers tax deduction under section 80C of the Income-tax Act, 1961. The reason the fund house decided to shed the tax tag it had in its name is because it wants to attract even those investors who do not need tax benefits. But did you know that this is not the first instance of such a name change? In September 2011, Axis Asset Management Co. Ltd had changed the name of its tax saving fund from Axis Tax Saver Fund to Axis Long Term Equity Fund (ALTEF).

Of the 54 tax-saving schemes in the market today, 12 schemes don’t have the word “tax” in their names. Fund houses that have changed their tax-saving schemes’ names to drop the word “tax” say that they want to broaden the appeal of such schemes. “We were getting feedback from distributors that investors are under the assumption that they cannot invest more than Rs.1.5 lakh in all tax-savings schemes put together because that was the maximum limit for section 80C benefits. But the fact is that these schemes don’t have an upper limit,” said Chintan Haria, fund manager, ICICI Prudential Asset Management.

Karan Datta, chief business officer, Axis Asset Management, feels that since investors, other than those who seek tax deduction, can also invest in these schemes, there’s no reason why tax-saving schemes shouldn’t appeal to others. “Why not just take the ELSS concept and put it in a broader category of open-ended funds? Why not position this scheme as one that can help investors create wealth in which tax advantage is not the main story, but just the fact that investors can keep their money for the long term?” he said.

But can this lead to duplication? Why must a fund house have a separate scheme for tax savings? Quantum Asset Management Co. Ltd addresses this concern. It has two actively managed equity funds—Quantum Long Term Equity Fund (QLTEF), which is a diversified equity fund, and Quantum Tax Savings Fund (QTSF), an ELSS. To avoid duplication, QTSF and QLTEF have identical portfolios. Datta says that in the case of Axis, they have positioned ALTEF as a multi-cap equity fund, while Axis Equity Fund is a large-cap oriented fund.

Some distributors say that it does attract genuine long-term investors who don’t mind the three-year lock-in. Others, like Suresh Sadagopan, a Mumbai-based financial planner, aren’t impressed: “Nomenclature is important. It is possible that investors will enter the fund without knowing about the three-year lock-in that comes with ELSS.” Haria counters by saying that if investors come in with a long-term perspective, a minimum three-year holding period is a given.

That is also perhaps the reason why ICICI Prudential Asset Management has retained the words “tax-savings” at the end of its scheme name.

Kayezad E. Adajania,